Crop prices heading up with the mercury, according to many industry analysts
Toronto and Chicago—No rain. No grain. Some pain.
That’s the assessment of one agriculture industry analyst, as record dry conditions across North America are causing pain for farmers, investors and consumers both north and south of the border.
“Suppliers and buyers, as well as the rural economy, will also feel the drought impact as farmers hold back on purchases until they revise their forecast and know where they stand,” said BMO Harris Bank agriculture managing director Sam Miller during a panel discussion on North American agriculture.
With summer temperatures soaring and little rain in the forecast—the U.S. is experiencing its worst drought in 56 years—crop prices are heading up with the mercury, according to BMO.
Grain producers are expected to feel the hit with smaller yields, Miller said, but crop insurance goes a long way in protecting them financially.
“Livestock producers will have a much larger hill to climb,” Miller said. “They’ll be searching high and low for feed (and) they’re culling herds now to reduce the feed needs and to improve productivity.”
Miller was joined by colleagues David Rinneard, national manager of agriculture with the Canadian financial firm, and strategy advisor Don Coxe, as they discussed the bleak outlook this year’s weather has caused.
“The U.S. drought has, in fact, transcended the Canada-U.S. border and it’s done so both from a weather perspective and of course as it effects commodity markets and de facto Canadian farm businesses,” Rinneard said.
In Canada, late frost followed by high temperatures has caused headaches for farmers, particularly in Ontario.
“With a few exceptions, the 2012 agricultural year has left much of Ontario’s land at record-dry status,” Rinneard said, noting land in the province is at its driest in 47 years.
Even hay has doubled and even tripled in price, he said, as fields—much like lawns—have been scorched in the sun.
In contrast, much of the Prairies are in the mid- to exceptionally high moisture status, according to Rinneard.
And with commodity prices creeping to near-record highs, he said non-contracted crop producers are well-poised to capitalise on the situation.
“That favourable situation holds true for much of Canada’s Prairies, and even some pockets of Ontario,” Rinneard said. “In some cases, even those cash croppers that are anticipating reduced yields will fair relatively well, as increased commodity prices will offset moderate yield deterioration.”
What shouldn’t be lost in all this, though, is that farmers, unlike most businesspeople, incur their input costs early in the year before there is any indication of the outlook on prices or yields, he said.
For investors, the outlook is less cut-and-dry, according to Coxe, but has remained relatively stagnant despite early activity.
“Coming into the planting season, what we had was strong action in the agriculture stocks,” he said. “Since then, what we’ve had is nothing but bad news about what the crops are going to be, nothing but good news about the price of the commodities and the stocks have done very little.”
What all this means, according to Rinneard, is a potential rut heading into 2013.
“The 2012 drought reminds us that despite high managerial prowess, the best planning, great husbandry, sophisticated crop production and rigorous marketing strategies, when it comes to agriculture Mother Nature often holds the right bower,” he said.